Indian IT firms bracing up for sorry figure this quarter

The performance in the typically weak quarter through December is further hurt by the Chennai floods and a general slowdown in global technology spending.Anirban Sen | ET Bureau | December 28, 2015, 08:34 IST

India’s top IT firms are bracing themselves for one of their worst quarterly results in recent memory. Their performance in the typically weak quarter through December is further hurt by the floods in Chennai and a general slowdown in global technology spending, several company executives and analysts said.

The setback will have further ramifications for India’s $146-billion IT industry. Homegrown giants such as TCS and Infosys may fall short of Nasscom’s 12-14% exports growth outlook for FY16.

There are worries that the current fiscal year may end as the worst in terms of revenue growth for Indian IT. Executives at the industry lobby group are even contemplating revising their projections for this year, according to people familiar with the discussions.

“Our modelling has factored in a certain figure for the likes of TCS (Tata Consultancy Services) – now we have to wait and see how the Q3 numbers turn out before we change our projections,” said a Nasscom executive, who declined to be named.

At least half-a-dozen analysts and brokerages ET spoke to are of the opinion that India’s top five software exporters may post a 1-2% fall in revenue – or at the most record a flat performance – on a sequential basis in the fiscal third quarter ending on December 31.

Two of India’s largest software exporters, TCS and Wipro, have issued Q3 warnings, raising fears that the slump could extend into the next financial year. “This will be a pretty bad quarter for Indian IT – no two ways about it. If they even manage to post flat growth, it will be seen as a positive by investors,” said an analyst at a foreign brokerage that closely tracks India’s software outsourcing industry.

The Q3 dampener comes three quarters after India’s top IT firms reported their worst January-March results, hurt mainly by severe currency fluctuations. While a weak rupee now is expected to benefit them in the current quarter, that may not be enough to offset the negative factors.

In fact, 2015 is proving to be one of the toughest years for IT service providers as clients have cut back on spending – technology researcher Gartner had estimated global IT spending to shrink by as much as 5.5% in 2015. The Chennai floods, which forced many IT firms to shut their offices in the city for several days in December, further crippled the companies towards the end of the year.

“I do expect this fiscal year to be worse in growth terms than last, but not that much outside of what I would expect at the start of the year given the ongoing slowdown, with the Indian firms regressing to the norm of the market,” said Jamie Snowdon, executive vice-president of research operations at HfS Research.

Infosys, India’s second-largest outsourcing firm and the former sector bellwether that will kick off the earnings season on January 14, has so far not issued any warning on performance about its December quarter. But experts expect almost all top firms to be impacted due to the disruption in their Chennai operations.

TCS told investors earlier in December that while a majority of its facilities in Chennai were opened for normal business functioning on December 7, attendance rates were lower than normal as employees were recovering from the flood’s aftermath. A few days later, Wipro issued a similar warning.

“The recent heavy rainfall and resultant flooding impacted the regular business operations of Wipro’s Chennai facilities during the first week of December.

For the quarter ending December 31, 2015, the incident is expected to have a material impact on the revenues and will result in higher one-time cost incurred towards deployment of our business continuity plan,” Wipro said in a filing to stock exchanges.